Using Constraints as a Leverage Point for Sustainable Growth

Whether you’re aware of it or not, every organization has a constraint, something that currently limits output. Correctly identifying the constraint is the key to managing the entire organization in all its complexity with greater precision and predictability.

As we have said many times, every human process, from getting to work in the morning to sending a man to the moon, is affected by variation. In other words, a process can never be repeated in an identical way.

We know that it’s impossible to eliminate it completely due to the existence of entropy, which means that all systems tend towards disorder. This phenomenon that we learn about in physics lessons matters for our enterprises.

Variation is a fact of life, and unless we learn to manage it, its impact can be costly and destructive. For example, if we do not manage variation correctly in manufacturing, this inevitably leads to scrap, waste and lost revenue. But variation is relevant to every kind of organization.

As we have already described, we can manage variation effectively by learning the statistical methods that allow us to understand it, measure it, and most importantly, take the correct actions to reduce it.

Once we have achieved statistical predictability in our processes, we need to synchronize them and protect them from disruption. The brilliance of Dr. Eliyahu Goldratt’s contribution to management was to understand how to do this simply: by identifying the constraint of the system, i.e. the element in the system that determines the pace at which the system generates units of the goal.

Every organization/system has its own constraint, and we have to figure out what it is.

Building the organization around the constraint

Goldratt’s fundamental insight was to understand that we can manage a system by focusing on the constraint, i.e. subordinating the other processes of the system to it to ensure it works to the maximum. We protect the constraint from the impact of variation affecting the other processes by placing a buffer before it. The entire system is scheduled around the constraint using a very precise finite capacity based algorithm.

All that matters for the success of the organization and those who work within it is speed and reliability. Our goal, therefore, is to create and manage a systemic organization based on process predictability and high synchronization of these processes. The only way to achieve this is to have an organizational structure that is built for and consistent with that very purpose. It is a structure where:

interdependencies are clearly laid out through detailed mapping of the processes within the organization

variation is understood and managed through relentless application of statistical methods

a physical constraint has been identified

a subordination process (to the constraint) is created

a buffer is placed in front of the constraint

The constraint dictates the performance of the entire organization, therefore a minute lost by the constraint is a minute lost by the whole system. The purpose of the buffer in front of the constraint is to absorb the cumulative variation generated by the system and to prevent this variation from generating disruption to the constraint.

In our next post we will look at the importance of dealing with cognitive constraints, i.e. the limiting beliefs that prevent us from achieving more.